Can companies choose the Court in the event of international contractual conflict?

Can companies choose the Court in the event of international contractual conflict?

Yolanda Dutrey

28 February 2016

The Hague Convention of 2005 on Choice of Court Agreements entered into force in the European Union on 10 October 2015, no less than ten years after its adoption.

This Convention, which was ratified by the European Union, links all Member States except Denmark and regulates two fundamental issues: the possibility for members to choose the competent court to hear their commercial conflicts and the recognition of legal rulings issued by judges chosen for said conflicts.

If two companies from different countries currently adhered to the Convention choose, in their contract, to appear before a certain court in the event of conflict, this choice is binding and must be upheld. Any court other than that chosen shall not be granted jurisdiction. The judgement issued shall be effective in all signatory states of the convention.

Does this convention change anything in Europe?

For the time being, the answer would have to be «almost» a no. The possibility to choose a jurisdiction in international contracts and the recognition of the judgements passed is an old concept in Europe. This option has been in place since the entry into force of the 1968 Brussels Convention on jurisdiction and the enforcement of judgements and, to this day, is still set forth in one of the most important regulations, Regulation 1215/2012.

The Community Text, rather than the Hague Convention, continues to be applied between Member States, therefore, this convention, on an intra-community level, does not imply any progress (art. 27).

Could it lead to real progress in international trade?

The reason, therefore, why the European Union enforces this text seems to be to boost trade with non-EU countries, generating greater legal security between all countries through standardised rules and international legal cooperation to establish effective judgements. With companies in countries that adhere to the convention, EU-based companies will be able to effectively incorporate the choice of court, ensuring that the judgement issued by the chosen court is enforceable.

This interest beyond Europe leads us to consult which non-EU countries have already ratified the convention in order to discover to which situations it shall be applied.

A quick look at the website for The Hague Convention shows that, at the moment, Mexico is the only country that has enforced the text. For Spain this does not represent significant progress, given that both countries have already had an agreement in place to recognise and enforce judgements since 1989. For Mexico, however, it opens up a procedural channel with other major countries in the European Union.

Mexican’s incorporation is also significant because it could perhaps lead other Latin American countries, which are adhered to regional texts with the same aims (such as the 1984 Inter-American Convention on Jurisdiction in the International Sphere for the Extraterritorial Validity of Foreign Judgements or the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgements and Arbitral Awards), to follow in the footsteps of Mexico and make the Hague Convention a globally admissible text.

The prospect of wide-scale incorporation of countries is unclear, although the benefits of the text in terms of international trade and the step forward for the European Union will perhaps enable its hoped-for takeoff in the near future, thereby advancing international civil procedural law.